RBI's Economic Capital Framework: Some suggestions



RBI’s Economic Capital Framework (ECF)*
Some suggestions for the Panel to consider
This refers to the report “Bimal Jalan to head expert panel on Economic Capital Framework” (Business Line, December 8). It is heartening to find that RBI has shown the magnanimity and chosen to include both Jalan and Rakesh Mohan in the Economic Capital Framework (ECF) Panel, putting to rest the speculations in the media about differences of views between GOI and RBI as to who should man the panel.
The terms of reference given to the Panel are broad enough to cover various aspects of the controversy about the capital framework of RBI which became almost a spar between two schools of thought on the holding of reserves by India’s central bank.
Here three or four aspects deserve the Panel’s attention. They are:
a)    RBI’s share capital has remained static at Rs 5 crore since inception (1935). Is there a case for raising this to a decent level, say, the equivalent of US $ 500 billion or upwards? If yes, whether this should be done by additional contribution by GOI or conversion of existing reserves?
b)    Whether RBI should create a ‘Capital Protection Fund’ to insulate its capital from erosion in value? If so whether the present provisions of RBI Act on ‘provisions’ will cover creation of such a fund or whether an amendment to the Act is necessary?
c)      Is it not prudent accounting practice for RBI to protect the value of its gold and foreign securities holdings against value erosion, instead of generating income by taking advantage of rupee depreciation? Actually the fallacious argument in Economic Survey, 2016-17 about ‘surplus reserves’ emanated from certain wrong notions about RBI’s accounting practices in regard to revaluation of non-rupee assets (gold, forex securities etc) which were promptly clarified by the then RBI Governor Raghuram Rajan and the ES suggestion was not pursued. Dr Rajan did give more elucidations on the subject in his Delhi speech on September 3, 2016.
Hopefully, all these and more will get clarified when the expert panel on ECF submits its report.
  M G Warrier, Thiruvananthapuram
*Business Standard published a slightly edited version of this letter on December 28, 2018

Comments

Post a Comment

Popular posts from this blog

NAVAGRAHA STOTRAM

NAVAGRAHA STOTRAM* According to astrology, the positions of the nine planets in the twelve constellations of the zodiac and their movements are considered to be quite significant. The nine planets ‘Navagraha’ affect every aspect of human life. They play an important role in the activities, physical and mental health and life of any individual. The unfavorable positioning of any of these planets can be the cause of problems, bad health, and stagnation for many people. However, there is a solution to avoid the ill effects of the position and movement of the ‘Navagraha’ in our lives. Navagraha mantras (or stotram) are simple mantras which work as powerful healing tools to reduce the negative effects of any of the nine planets. These mantras are Hindu holy hymn addressing the nine planets. Benefits Of Navagraha Stotram And The Way to Practice The Navagraha Stotram is written b y Rishi Vyasa and is considered to be the peace mantra for the nine planets. They are powerful m
Read more

THE SUNSET OF THE CENTURY

*SUNSET OF THE CENTURY: Rabindranath Tagore THE LAST SUN OF THE CENTURY SETS AMIDST THE BLOOD-RED COLOURS OF THE WEST AND THE WHIRLWIND OF HATRED. THE NAKED PASSION OF SELF-LOVE OF NATIONS IN ITS DRUNKEN DELIRIUM OF GREED IS DANCING TO THE CLASH OF STEEL AND THE HOWLING VERSES OF VENGEANCE. THE HUNGRY SELF OF THE NATION SHALL BURST IN A VIOLENCE OF FURY FROM ITS OWNSHAMELESS FEEDING FOR IT HAS MADE THE WORLDITS FOOD, AND LICKING IT, CRUNCHING IT AND SWALLOWING IT IN BIG MORSELS, IT SWELLS AND SWELLS TILL IN THE MIDST OF ITS UNHOLY FEAST DESCENDS THE SUDDEN HEAVEN PIERCING ITS HEART OF GROSSNESS…   *Note: “The Sunset of the Century”, translated by the poet, from Naivedya; The English Writings of   Rabindranathtagore, Volume II,Delhi 1996, page 466. Quoted in his article ‘Critiquing nationalism’ by K Satchidanandan (Frontline, November 14, 2014). The article takes you to a much broader spectrum. HAPPY READING(READ MORE STAN
Read more

The King of Ragas: Sankarabharanam

                       The King of Ragas                      --------------------------     Long ago  serpents were put to lot of hardships.They  were afraid of other animals. They had to seek refuge in the hermitage of sage Saraba.The sage was a true devotee of Lord Shiva.He used to pray Shiva with melodious songs. As he sang a particular raga the snakes were much inspired and they began to dance,. Slowly the serpents became friendly with the sage. They brought water in their mouths for the pooja.They secreted  a special fluid in which the flowers got stuck to their bodies.The sage was much astonished by the service of the snakes.As the sarpas became very close to the sage ,they requested him to help having Darsan of Lord Siva. As requested by the sage Shiva appeared in the form of  a  Kapalika and stayed in the ashram.The music and dance of the snakes continued. The snakes rendered service to the kapalika as they considered him  a Shiva bhakta.Shiva was much pleased with t
Read more